Welcome to Saudi Aramco's Full Year 2021 Results Call. We will be holding a question and answer session following the presentation. If you'd like to ask a question, please press star followed by one on your telephone keypad at any time. I shall now hand over to Mr. Fergus MacLeod to begin.
Hello and welcome to this audio webcast discussing Saudi Aramco's full year 2021 results. I'm Fergus MacLeod, Saudi Aramco's Vice President of Investor Relations and it gives me great pleasure to be joined today by Amin Nasser, our Chief Executive Officer, and Ziad Al-Murshed, our Chief Financial Officer. Our webcast today will comprise a presentation followed by a question and answer session, and we anticipate the entire call lasting around one hour. I would like to remind you that this webcast and conference call are being recorded. Before we start, I'd like to draw your attention to this cautionary statement. During today's presentation, we may make forward-looking statements that refer to estimates plans and expectations. Of course, actual results and outcomes could differ materially due to factors we note on this slide. Please do also refer to our regulatory filings and website for more details.
With that, I'll now hand over the call to Amin.
Thank you, Fergus. Welcome everyone and thank you for joining us. It is a pleasure to be speaking with you today, 12 months ago, I said that 2020 had been a year like no other. Since then, volatility in the world and in energy markets has continued, as we are all very much aware. With this unprecedented volatility, I am very proud of how the men and women of Aramco have risen to the challenge. Together, we have delivered exceptional performance in 2021 and we are embarking on growth strategy that we believe will help the world meet its need for a secure and sustainable energy and maximize value to our shareholders. Let me begin by looking at the broader picture. After the unprecedented collapse in oil demand in 2020, we saw a healthy rebound in 2021 as the impact of the pandemic began to ease.
We now expect global demand to return to pre-pandemic levels by the end of this year. Although the tragic situation in Ukraine has created a new level of uncertainty. Our heartfelt sympathy goes out to all those affected by the conflict. Looking to the medium term and beyond geopolitical issues that we can only hope will be resolved before too long, oil demand is expected to continue to grow for the rest of this decade. The challenge for the world is very much on the supply side. Most observers agree that our industry is currently not investing enough to meet even conservative estimates of likely demand, given the inevitable decline of existing fields in various parts of the world. This begs the obvious question of who will be investing to help fill the gap. I will give you one equally obvious response.
Aramco will be a key part of the answer. We are confirming today that Aramco is stepping up and increasing our investment significantly over the next few years to provide reliable, affordable, and ever more sustainable energy to customers around the world. Our oil is among the lowest cost and lowest carbon intensity in the world, so it makes sense from both an economic and environmental viewpoint for incremental supplies to come from us. Therefore, we will grow and by growing, we will be working to support a successful energy transition while also generating significant value for our shareholders. For this reason, our strategy is underpinned by the belief that the world's need for affordable, reliable, and sustainable energy will continue to increase. Our vision remains to be the world's preeminent integrated energy and chemical company operating in a safe, reliable, and sustainable manner.
As a result, the focus area of our strategy are straightforward. Upstream preeminence and capturing supply gap opportunity, downstream integration to de-risk our leading upstream position through liquids to chemical, low carbon businesses, and solutions to enable achieving our net zero ambition by 2050. Finally, the localization of our supply chain to further maintain superior reliability and cost effectiveness. The strategy is enabled by our people, deployment of advanced technology and our firm focus on portfolio optimization to unlock capital and redeploy it in higher value opportunities. We ultimately look at our value creation through four lenses, profitability, growth, operational, and financial resilience and sustainability. I will now walk you through the steps we are taking to put this strategy into execution. Starting with upstream.
Our core objective is to increase our maximum sustainable capacity even further, from 12 million barrels per day to 13 million barrels by 2027. As you can see on the map, this capacity will come from multiple increments starting in 2024 and reaching 13 million barrels per day by 2027. Our crude oil production is also already among the world's least cost and carbon-intensive and our goal is to preserve that competitive advantage and remain one of the lowest in the industry. We also plan to increase our gas production by more than 50% by 2030 in order to help the kingdom achieve a more sustainable energy mix while achieving commercial returns. The growth in supply will come from a mix of conventional and unconventional fields and come with significant quantities of ethane and high-value liquids for further growth in chemicals.
The additional gas supply will displace significant volumes of liquid burning. This in turn will help reduce Kingdom's emissions and avail liquids for export. We are also introducing gas storage in order to manage seasonal gas demand for the utility sector in a cost-effective manner. A key part of our gas portfolio is the vast Jafurah field which will provide the feedstock for potential blue ammonia production, which in turn will support our planned development of a hydrogen export capability. Our downstream business has grown rapidly with the acquisition of 70% equity interest in SABIC. Our focus in downstream is to de-risk our leading upstream position and capture integration value through liquids to chemical with a long-term goal of converting up to 4 million barrels per day into chemicals. We are equally focused on performance improvement.
We have launched a transformation program across all of our assets to unlock value through reducing costs and capturing better margins. The company has advanced well in the realization of recurring synergies with SABIC. Out of our target of $3 billion-$4 billion, we have realized around $1.6 billion just in 18 months after closing. Finally, we are growing our trading and marketing business and expanding the recognition of our brand. Last year, we launched our first Aramco-branded service stations in the kingdom. Also, a new line of lubricants products was launched in the kingdom domestic market under the ORIZON brand. We previously set out our ambition to achieve net zero Scope 1 and Scope 2 greenhouse gas emissions across our wholly owned operated assets by 2050.
We did so because we are deeply committed to playing a leading role in helping to ensure a stable and inclusive energy transition. That said, we realize that the pathway to net zero will not be a straight line, and achieving this in less than three decades will not be easy. However, Aramco is also coming from a position of strength. Our upstream carbon intensity is already one of the lowest in the industry, and we aim to become a global leader in carbon capture and storage and a leader in hydrogen export capability. We recently confirmed a new goal to reduce our upstream methane emission intensity to near zero by 2030. We are also now investing significantly in renewables, including holding an equity stake in Saudi Arabia's largest solar power plant in Sudair as a first participation in the Public Investment Fund's renewable program with ACWA Power.
We strongly believe that Aramco has a critical role to enable a future in which the world has secure and affordable access to energy with lower emissions. We recognize both the scale and urgency of the global climate challenge. As one of the world's largest integrated energy and chemical companies, we see ourselves as stewards of the environment, while at the same time being stewards of reliable, secure, affordable, lower carbon energy to the world. As demand for energy continues to grow in response to an expanding world population and rising living standard, we believe oil and gas will still play a vital role for decades to come. The suggestion that hydrocarbons can be quickly eliminated from the global energy mix is unrealistic and we believe oil and gas will still be required in a net zero world.
Reducing emissions from energy production and use, while at the same time satisfying the world's growing energy requirement, is the biggest dual challenge facing our industry. With our low upstream carbon intensity and our low cost, as well as our demonstrated capacity to innovate, we believe Aramco is well positioned for the future. Simply put, the depth of our commitment is demonstrated by the scale of the investment we plan to make to help enable a successful energy transition. Let me now turn over to Ziad to go through our 2021 performance and our plans going forward.
Thank you, Amin and welcome everyone. I'll take you through our 2021 performance and some details about our plans going forward, hopefully leaving sufficient time to answer your questions at the end. Before we get into the numbers, let me highlight some of our key initiatives in 2021. In upstream, despite challenging circumstances, we completed the 'Ain Dar and Fazran crude oil increments in our Ghawar field, resulting in a combined additional production capacity of 175,000 barrels per day. We also started development of the vast Jafurah unconventional gas field in the eastern province of Saudi Arabia. Jafurah is the largest non-associated gas field in the kingdom. It is spread over an area of about 17,000 sq km and contains an estimated 200 trillion standard cubic feet of gas in place.
Meanwhile, we intensified our focus on cutting-edge technologies, where we inaugurated the Dammam 7 supercomputer which is one of the world's most powerful supercomputers. We're now using this to run 3D subsurface modeling to enhance efficiencies in our exploration and production activities. In Downstream, we continued growing our portfolio with the startup of Jazan Refinery and the opening of the first Aramco-branded service station in Saudi Arabia, as well as the launch of a new line of finished lubricants. In Renewables, we entered our first investment in the Public Investment Fund's renewable energy program with ACWA Power, with the investment of 30% in the 1.5 GW Sudair solar power plant. We also continued our portfolio optimization program to unlock value and redeploy capital to higher return investments.
This includes a divestment of 80% of our stake in Jazan IGCC and two lease and leaseback transactions related to our oil and gas pipelines. The total unlocked value so far is about $40 billion. We also continued to further diversify our funding sources and expand our investor base in order to strengthen our financial framework. In 2021, we issued our inaugural U.S. dollar-denominated Sukuk of $6 billion which attracted a new group of investors looking for Sharia-compliant debt instruments. Let's now look at our key operational and financial highlights for 2021. We generated net income of $110 billion and free cash flow of $107.5 billion. Both were more than doubling from the previous year.
Our net income is the highest globally and second only to our own historical performance, where it's only $1 billion shy of the $111 billion we achieved back in 2018. This strong performance and high level of free cash flow fully supported our cash dividend distribution of $75 billion during the year and we were able to decrease our balance sheet gearing to 14% down considerably from 23% at the beginning of the year. Our capital expenditure was $31.9 billion, up by $5 billion, which is about 19% above 2020 CapEx, again demonstrating our ability to flex our capital program up and down as appropriate. Looking deeper, you can see improvements in the profitability of both Upstream and Downstream. Upstream delivered EBIT of $200 billion which is 81% higher than the previous year.
This was mainly driven by an increase of $30 per barrel in realized oil prices. Downstream EBIT improved by $22 billion, driven by a combination of higher margins, inventory valuation gains, full year of SABIC consolidation versus only about six months the year before, and starting to see results from our downstream transformation, which focuses on profit improvement. Finally, as I mentioned earlier, the strength of our free cash flow combined with portfolio optimization proceeds, allowed us to reduce balance sheet gearing to 14%, down considerably from 23% at the beginning of the year. Overall, 2021 was a very strong year for Aramco, a year in which we continued to deliver strong net income and cash flows to optimize our capital structure, to diversify and expand our investor base, to strengthen our balance sheet, and to maintain our strong credit rating.
Now, before I zoom in on CapEx, I wanna build on what Amin described as unique investment opportunities that allow us to create additional shareholder value. We mentioned expected global supply gaps, creating an opportunity for us to bring additional barrels from our side, which actually makes a lot of sense from both the perspective of economics as well as sustainability. Because our barrels are among the lowest cost and lowest carbon intensity barrels in the world. Amin also mentioned similarly unique opportunities in gas, downstream, low carbon fuels, and localization. We're executing our plans to capture these unique opportunities to create significant shareholder value and as a result, repositioning the company and its stock from a value stock to a combination of value and growth.
You've seen our historical track record of generating outstanding returns through the ups and downs of energy cycles, which demonstrates the capability of our current portfolio to generate outstanding results. Now, we also have the unique opportunities to grow to create even more shareholder value going forward. Now, it's important that we explain what this means to capital expenditures over the next few years. I'll give you some guidance not only for the current year, as we've done historically, but also guidance on capital expenditure profile over the next few years, at least directionally. In 2021, we increased our capital spending by 19%, and we intend to increase our investments even more in 2022. Our guidance is that CapEx for this year would land in the range of $40 billion-$50 billion.
This significant increase in spending is to capture the growth areas Amin mentioned earlier. Because the investments in our industry take five-seven years to come on stream, our capital spending will continue to increase over the next few years as we continue to invest in growth, peaking by mid-decade. Specifically, over the next few years, in addition to sustaining capital, we're focusing on increasing our MSC to 13 million barrels per day, growing our gas production by more than 50%, significantly increasing integration into chemicals to reach up to 4 million barrels per day going into liquids to chemicals with the objective to capture additional value while de-risking our massive upstream position, and investing in low-carbon businesses and solutions, including CCS, blue hydrogen, and renewable energy, as well as nature-based solutions.
As I said, we expect this increase in CapEx trend to peak around the middle of the decade. During this phase of high growth, it is important for us to maintain financial flexibility and strength to be able to fund our investment plan under various scenarios. This requires that we execute a massive growth program to create mid- to long-term value while continuing to deliver short-term value, thereby maximizing shareholder returns. To enable that, we have designed our financial framework to retain significant financial flexibility to navigate through oil price cycles. While a down cycle may seem unlikely right now, we should never forget that this is a cyclical industry and that we need to maintain a strong financial muscle to be able to weather storms as we did in 2020.
For that purpose, our financial framework remains focused on long-term shareholder value creation and is centered around three main pillars. First, we continue to prudently optimize our capital structure to maintain high investment grade credit rating with sufficient capacity. Second, we continue to diversify our funding sources and expand our investor base while optimizing funding cost, which provides optionality and execution flexibility. Finally, we continue our capital discipline and financial prudence through oil price cycles. Therefore, our cash flow allocation remains essentially the same and continues to prioritize sustaining capital to maintain our near 100% reliability. After that, we prioritize a sustainable dividend and I'll explain what I mean by that in a minute. Comes growth capital, and this is massive, as I just explained. Finally, any remaining cash will be used for either deleveraging or additional distributions or both.
Remember that we look at this cross-cycle and not just for the current year. Now let me focus on our dividend policy. Our aim is to maintain a dividend that is also progressive. By progressive, what we mean is that we intend to grow dividends in line with the sustainable long-term underlying growth and free cash flow of the company. Having said that, it is important to note that when we look at creating shareholder value, we're looking at total shareholder returns, not just at dividend distribution. This ties back to what I was explaining about our stock having a unique combination of value and growth. I cannot overemphasize that we look at everything cross-cycle in order to make sure that we do not compromise mid to long-term value for short-term gains.
We are continuously stress-testing our plans to ensure flexibility, so we stay on course even if there is another major market downturn. We believe this is the best way to deliver long-term shareholder value. Our goal is to reinforce our financial strength during the good times to be ready for whatever future challenges the market may throw at us. This is what lies behind the dividend decisions we've just announced. We enter 2022 with a strengthening financial position which allows us to continue delivering a sustainable dividend while executing our growth plans. We declared cash dividends of $75 billion for 2021, and our board recommended capitalizing $4 billion of retained earnings to support the distribution of bonus shares in the amount of one share for every 10 shares. These decisions signal both our confidence in future growth and our focus on financial prudence.
Before we move to Q&A, I want to leave you with one final thought. Our accelerated growth program is based on our strong belief in our unique opportunities to create additional shareholder value. Throughout Aramco's long history, we have proudly prioritized long-term value, whether in our approach to reservoir management or the building of the Master Gas System back in the 1970s. We believe that this has served us well and is one of the main reasons we are currently delivering such outstanding performance. Therefore, we intend to continue this long-term focus. As you can see from our results and track record, we're not ignoring the short term. As we often say, we think in decades rather than quarters. We want to leave some time for Q&A, so let me pause here and turn over to Fergus to facilitate the Q&A session.
To ask a question, please press star followed by one on your telephone keypad. To withdraw your question, please press star followed by two. When asking a question, please ensure you are unmuted locally. I shall now hand back to Mr. MacLeod.
Thank you very much, operator. I think our first question comes from Mazen Al-Sudairi from Al Rajhi Capital. Mazen, are you there? Please go ahead.
Yes, t hank you. Thank you all. This is Mazen Al-Sudairi from Al Rajhi Capital. Thank you for taking my questions. My first question is on the breakdown of the CapEx of $40 billion-$50 billion plan for 2022 in terms of oil and gas and renewable energy, the breakdown. The second question is on the 1 million barrel increase in production by 2027. Would this increase be gradual or fully in 2027? Thank you again and congratulations for those results. Thanks.
Thank you, Mazen, for your kind words. I think two questions. The specific breakdown of 2022 CapEx, specifically for this year, as I understood it. Then secondly, the increase in our maximum sustainable capacity to 13 million barrels a day. Does it all happen at once in 2027, or does it happen progressively over the period between now and 2027?
Exactly.
Thanks, Mazen.
Thanks.
Thank you, Mazen. With regard to the capital, the breakdown for the capital, it's 1/3, I would say, for upstream oil, 1/3 for upstream gas, and approximately 1/3 for downstream, a lmost 1/3 for each. Basically the majority goes for upstream which is more than 2/3. With regard to the 1 million barrel increment by 2027, it's gonna come gradually. As highlighted in one of the slides, it starts with small increments and slight increase. I would say significant increase you will see from 2025, 2026 and 2027. It will come gradually through 2027. It's not one big increment that will come in 2027. It will come gradually, starting with 2025.
Mazen, as Mr. Nasser mentioned, slide seven in the prepared slide deck gives you some indication. It's not, you know, an accurate plot. It gives you a shape of how you'd expect that increase in maximum sustainable capacity to be brought on stream. Thank you very much indeed for your question.
Many thanks.
Next question comes from Karen Kostanian from Bank of America. Karen, could you go ahead, please?
Yes, gentlemen. Thank you very much for your presentation. Congratulations on great results. I have two questions as well. The first question is how much in total the increase in MSC is going to cost you from now to 2027, if you have an estimate. The second question, in this $40 billion-$50 billion CapEx that you announced for this year and increasing forward, are there elements of the Shareek Program already incorporated into that CapEx? If they are, what are they? How much do they cost? Thank you.
Very good. Karen, yes, again, two questions as I understood it. Are we prepared to disclose the specific cost of the increase in MSC? Then secondly, how does Shareek work in terms of this capital program, this company record capital program that we've announced?
Thank you, Karen. As highlighted, you know, there is a significant growth in our capital expenditure in upstream and downstream. MSC is an important element in our growth strategy and our capital program and it will be disclosed year by year in terms of how much we will be spending, depending on our drilling and project execution. It's gonna be over a number of years, the 30 million maximum sustained capacity. With regard to the $40 billion-$50 billion, how much of it is?
You put, how much is oil?
Yes.
About-
The 40-50?
Yeah. The breakdown is about 30% or so oil. A little bit less than that for gas, a bout 27% is for gas, a bout a third of it is downstream.
Great, Karen. The other question, I think, was how Shareek-
Shareek.
Fits into the whole capital program.
We work with Shareek with regard to a number of programs. We already engaged with them in a good number of projects that we have that require Shareek support. It's working very well in terms of any incentives that would be required to support any of these projects.
I think it's right to say, Karen, that, you know, some of these projects would not be possible without Shareek and we're very grateful to the government, and we're very much aligned with the government in terms of going ahead with some of the items that we've discussed as being part of this Shareek program. It's not something that would be additional to what we're describing today.
No. It is all within the $40 billion-$50 billion per year. Shareek Program will be a certain incentive. It's a voluntary program. The incentives could be in tax in terms of regulations, in terms of other supports that would be required for any of these programs.
Excellent. Thank you very much.
Thank you. Next question, I think from Gordon Gray at HSBC, if you're there, Gordon.
Yeah. Thanks, Fergus. Good afternoon, gentlemen and thank you very much for taking my question. I appreciate the scale of the opportunities and the scale of the CapEx needed to fully deliver value for them. In the current oil price environment, you know, it looks like we're looking at substantial excess free cash flow anyway on top of that. Can you give us any more of a sense of how much more you would expect to want to strengthen the balance sheet? You know, I know the old guidance of the 5%-15% gearing ratio is no longer valid or no longer there. Would you happily take the balance sheet to a fairly strong net cash position? That seems quite possible in the next few years. Thank you.
Gordon, yeah. You're saying we've got a nice problem, which is we've got a very, very strong free cash flow position, and why can't we afford to do everything at once, so to de-gear and have a you know, record capital spending program? That's the question.
Thank you, Gordon. A couple of things to say about this. One is, the previous range of 5%-15% which you referred to, and we've always said that it's indicative and it's cross-cycle. We're ending the year just inside the upper end of that range. More importantly, we're looking at maintaining high investment-grade credit rating, which as you know, goes well beyond the balance sheet gearing. Reminder again, we're in a very cyclical business. It's very easy to, you know, get carried away during the good times. We've promised to maintain our fiscal discipline and our financial prudence throughout, including when times are good.
If you look at the capital program, we tried to provide some guidance directionally on where this is going precisely so that you know that CapEx is growing beyond what we're saying just for 2022. For that, we still need to strengthen our financial muscle so that we're sure as we're executing, we don't have to pull back on some of these investments because that would, you know, destroy a lot of shareholder value if we had to do that. As a result, we're not only deleveraging the company, but we are expanding our investor base. We're also diversifying our funding sources. We're maintaining our fiscal discipline.
You know, projects that would not be approved, you know, at lower oil prices would still not be approved, you know, now just because the prices are high. We're maintaining the financial prudence that I just explained.
I'd like to add also, Gordon, that we are in a cyclical business. We have been through this, through the history, and we are currently positioning the company for significant growth. If you look at our plans, up to 4 million barrels of liquids to chemical, in terms of diversifying our portfolio, in terms of our dependence on the transport sector by shifting more of our barrels to higher value, which is the chemical side. The other thing is we are making, other than increasing our MSC by 13 million barrels, we are looking at increasing our gas by more than 50% and that would also avail 1 million barrels, additional 1 million barrels of liquid that will be available for export.
This is a huge opportunities ahead of us that we need to execute because as we have always said, the energy industry did not do enough in terms of investment due to various reason. It is a good time for us to capture the growth opportunity that we see not only in the kingdom but also globally.
Understood. Thank you.
I think we're a company that likes to think in decades, not quarters. Maybe that's a bit different from some others, but it's something that's a proud tradition of the company. Next question comes from Mohammed Al-Thunayan from Jadwa. Mohammed, if you're there, please ask your question.
Yes. Hi. First I would like to thank you for having us on the call and, congratulations on the remarkable set of results for both fourth quarter and full year 2021. There are two parts to my question which are related to the same topic. The first part is building on the company's statement of sustainable and progressive dividends in line with the future prospect and the underlying growth in free cash flow. By quoting progressive, is it fair to assume that the likelihood of paying a special dividend is higher in 2022, especially if oil prices remains at their current healthy level?
The second part is, have the management recommended or the board considered the idea of segregating the company's dividend policy between the state and the minority in order to further align shareholders' interests, especially given the current royalty and income tax structure in place, which set the government to benefit from high, oil prices above a certain threshold, which is not necessarily the case for the company's minority shareholders?
No, no. Very interesting. Two very interesting questions. One of them is a general one, I think, about the dividend policy of the company, what we mean by sustainable and progressive. The other one is, would it be possible to have a different dividend policy for the minority from that for the government shareholding?
Let me just address the different dividend policy and Ziad can take both the questions. You will find out our results for 2021 with $70 and only 9.2 million barrels production. We came up with excellent results compared to even previous history. You know, if you look at 2019 which we had more production than currently and we came up with about $111 billion in terms of-
Yeah.
However, the minority benefited the same as the government from $70. As we go to a bigger, higher bracket, yes, there is more royalties, as you have stated, but still, the minorities as well as the government will benefit. The big shifts that will happen is above $100 when royalties will go to 80%. That only impacts the additional barrels or the additional dollars beyond the $100 and not the first $100. There is a lot of benefit that will go to the minority shareholders under the current benefit or dividend strategy or policy.
Yeah.
Yeah. I wanna start actually from where Amin ended. We don't see really any misalignment of or between the interests of the government and the public shareholders. You know, you have to keep in mind that when the company went public, the royalty rate was reduced significantly. It's fairly low at anything below $70. It's just 15%, 1-5. For every incremental dollar above $70 and until $100, the royalty rate increases to 45%, which is, you know, still not high. It's only for the incremental dollar above $100 that royalty goes up to 80%. If you look at this, overall from the company's perspective, it's still a lower royalty rate than, you know, previously paid by the government. It's also, on average, a reasonable arrangement.
Now, on the dividend policy and the sustainable and progressive dividend, again, we do our planning long term. We think or we plan the, you know, a sustainable and progressive dividend also long term. We would like to maintain and increase over the years the dividend as opposed to a policy that prioritizes special dividends at the end of a year because of the long nature of the cycle of the company, the industry that we're in. Again, we're looking at the strong credit rating of the company, maintaining and further strengthening that. We're looking at a massive capital program that's gonna take us over the next several years. We feel it's prudent to you know, be on the conservative side of this.
Now, the bonus shares that were recommended by the board were meant mainly as a signal of you know, belief in the growth plans that we're undertaking. If you put all of this together, we feel it's a balanced dividend policy which looks and prioritizes the mid to long term without ignoring the
Thank you, Mohammed, for your question. Next question is, I believe, from Christyan Malek at JP Morgan. Christyan, go ahead, please.
Thanks, Fergus. Good afternoon, gentlemen. Two quick questions from me. First of all, just on your MSC capacity of 13, the 2027 outlook that you've got, is there any way you could potentially expedite it sooner? Particularly given, as you pointed out, I mean, the underinvestment globally in spare capacity is at a point now where you could actually see more demand for your barrels sooner. I wanted just in terms of timeline, to what extent could you actually accelerate your MSC capacity earlier than 2027? The second question is regarding your level of production that you can deliver on a sustainable basis. There's other questions in the market around what you can deliver, whether it's sort of 12 or 12.2 on a sustainable basis.
As we come back to two years ago, it's almost like déjà vu, where I know you talked about being able to deliver on sustainable basis over 12. If you could just give us an update, and what I mean by sustainable without incurring reservoir damage or suboptimal production? Then the third question, and this is around your cash breakeven, around $65-$75. Is your cash breakeven currently even on an elevated CapEx? The question I have simply is what are you going to do with all the extra free cash flow if oil does stay above $100 over the medium term? What are the priorities or kind of levers of that extra cash flow?
Your peers have all put a framework together in terms of sort of a percentage of free cash flow they return back to shareholders. I know you haven't, and you've explained why, but I would just love to know what is the framework in a kind of a sort of pro-cyclical scenario? Thank you.
Okay, Christyan. Three questions I understood. First one was could we get above 13 million barrels a day before 2027? That could either be by producing above maximum sustainable capacity or by bringing maximum sustainable capacity to 13 sooner than 2027. First question. The second one is can we really produce 12 million barrels a day? Well, of course, the answer is we did in April 2020. There was a question about, I guess, people are still asking the question about how long could you do that for? You know, what costs would be associated with it? Because they've got an opportunity to remind you the definition of maximum sustainable capacity.
The third one is, why don't we have a framework for excess free cash flow that gives you a kind of formula for how we'll split it between, growth CapEx and dividends or special dividends or something like that. Some companies have tried to do that we can think of in our industry. Those are three questions, I think, Christyan.
Okay, I'll take one and two. Thank you, Christyan. With regards to-
Thank you.
The MSC going to 13 million barrels, that's why we are bringing it gradually. You know, we are trying to accelerate to the maximum we can, considering, you know, a lot of it will come from offshore, and there's a lot of construction that is already ongoing. We brought a lot of rigs to expedite. It will come in increments, as I said. Slight increase in 2024, and then the big increases you will see it from 2025, 2026, and 2027. What is more important is that we will avail more production for export by eliminating liquid burning in the kingdom. That's why we are also accelerating the gas. We are increasing our gas capacity more than 50% from non-associated, associated, and unconventional gas. Mainly unconventional and non-associated gas.
That will eliminate liquid burning in the kingdom and avail more of our crude for the export market. We're working in two fronts. Basically, you are talking about 2 million barrels. It's not going from 12 to 13. It's basically because you are able to eliminate liquid burning, you will avail an additional million barrel for export markets. With regard to our level of production, when we talk about maximum sustained capacity of 12 for Saudi Aramco, and for the kingdom is 12.5 because of the neutral zone. It's the 12 million barrels that is sustainable. Basically, if we get the call from the government to reduce at 12, we can sustain it. Of course, sustain it with maintained potential, and that's normal. It is sustainable.
As we increase it to 13 million, it will be sustainable also at 13 million barrels. But within the guideline, we are producing based on the guideline, the targets that we receive on a monthly basis from the government. With regard to your third question, Ziad will take that.
Thank you, Christyan. You asked what we'll do with the free cash flow. I wanna highlight a couple of things. First of all, above $100, royalty rate is at 80% which leaves 20% as profits for the company. That 20%, mind you, is taxed at 50%. That leaves 10% of that increase, that increment that's above $100, flows into our profitability and our free cash flow. Even if, you know, when, you know, prices at $100, don't get me wrong, are high. But I want to make sure that you understand that above $100, it's not the linear increase that you would be expecting.
You know, below 100, it's high, but keep in mind what we shared in massive growth opportunities that are in a lot of cases unique to us. That has a lot of spending over the next four-five years. That is primarily what we would be doing with the free cash flow. Again, the priorities on our cash are the sustaining CapEx, followed by the sustainable dividend that we're talking about, and then growth. Then if after all of that, we see additional distributions, you know, again, we take a multi-year look across the cycle, then yes, there would be additional distributions or further de-leveraging of the company or both.
Good. Thank you. Can I just ask a follow-up? Apologies. It sounds to me that, you know, if we are sort of going into sort of a multiyear super cycle that. Would you confirm your cash break even, the $65-$75. Is it fair to assume that will just continue to rise, as in you'll continue to sort of raise CapEx to mark-to-market to where, or, I just want to understand. It feels like there's upside to CapEx further, potentially, as you recalibrate where kind of the oil market is over sort of the medium term. Is that a fair assumption, or just trying to sort of deduce where the-
Maybe I can just clarify something, Christyan. Hopefully, we've made it clear. Our capital program is not a function of today's oil price. It's a function of a view right across the cycle and across multiple cycles. It's stress tested, as the CEO and the CFO made clear against some very conservative assumptions. It's not gonna vary, you know, depending on this year's oil price.
That, that was-
That you know, I just warn you about that as a sort of precursor to your question.
Just to add to what Fergus said, Christyan, we have great opportunities actually in Kingdom and in the East, you know, with regard to liquids to chemical. A lot of these projects are currently over the next three years, you will see a lot of growth. We are seeing that from our partners globally. These opportunities present a great investment for us as we are planning to grow our liquids to chemical and diversify our portfolio over the long term.
Thank you.
Thank you, Christyan. Thanks. Next question is from Iyad Ghulam from SNB Capital. Iyad, you guys go ahead, please.
Asa-salamu alaykum. This is Iyad Ghulam from SNB Capital. Congratulations on the great results. I have two questions. The first one is about Jafurah. What is the progress so far, and when it will start production and how much it will add to the total capacity? The second question is about the lease and leaseback transaction that you did recently. What is the cap rate for that transaction? Thank you.
Yeah. First one, I think, was very clear. Just some comments on Jafurah, you know, one of the world's largest non-associated gas fields. Timescale for development, contribution to production, you know, other sort of, I guess you're looking for more detail on Jafurah. The second one was about the pipeline transaction, the oil and the gas. Wasn't quite clear what you said there. Could you possibly repeat?
Yeah. I'm asking the cap rate that you have done the deal with. The assets cap rate.
The asset cap rate.
Okay. Thank you, Iyad. As you know, Jafurah, as Iyad highlighted in his comments, it's more than 200 billion when it comes as a resource. It's the largest unconventional project in the Ghawar, around the Ghawar field. It's about, as I said, 170 by 200 km to look at, containing a lot of, as I said, gas, resource gas. It's very profitable for us, and we anticipate that by 2025, we will start first production of around 300 million scfd from there, and we will reach 2 billion scfd by 2030. Good amount of that gas will be dedicated to blue hydrogen. We have a intensive drilling program currently in Jafurah.
The great thing about Jafurah is the amount of ethane that we will be getting out from this rich gas and the amount of liquid. Jafurah benefit is not only in bringing a lot of gas. It will bring a lot of ethane that will help us to expand our petrochemical sector within the kingdom, and will bring a lot of liquids with it that will be utilized either for the petrochemical sector or for export. With regard to our lease and leaseback two pipelines, I think we closed the gas-
Perhaps I could just say, Iyad, what we'll do then. I think the question is about the CapEx. We'll come back to you on that offline if we may.
Yeah.
It's quite a technical question, and we've still got quite a few questions to come on the call. Thank you for the question. We will follow up immediately after this call. Next question is from Martijn Rats at Morgan Stanley. Martijn, could you please go ahead?
Yeah. Thanks for that. I've two questions, if I may. First of all, I was wondering if you could say a few words about the impact of the Houthi strikes on some of your facilities. Also sort of related to that, this somewhat unusual comment from the Ministry of Foreign Affairs, saying that the responsibility for any shortage in oil supplies to global markets in light of the attacks on its oil facilities no longer rests with Saudi Arabia or something to that effect. Can you sort of elaborate a bit on that? Just the second question I wanted to ask. It goes back to your sort of comments about dividend policy. If Aramco from here on has a bit more of a growth aspect, at some point the growth will probably also be translated in an increase in dividend capacity.
I was wondering, given the outlook you have laid out for capital expenditure, some of the comments you made on royalties. When do you think the sort of growth that is now invested for will lead to an increase in dividend capacity?
Okay, Martin. Two questions there. One is the terrorist attacks, you know, yesterday and others, you know, where we stand on that. Then the second one, I think was about when the growth that we've described, and we're very excited about, leads to an increase in dividend capacity. I guess we could also ask you say sort of really sort of depends on your oil price and production expectations. Really it very dependent on that. I guess you're saying we talked about through the cycle underlying, and how do we think about that? Those two questions.
I take the first one with regard to the escalation from a Houthi in terms of the number of attacks that we have seen recently. Yes, you are absolutely. I think we are seeing an escalation in terms of the number of attacks, especially over the last three weeks from a Houthi. That escalation is targeting a lot of the industrial facilities. Alhamdulillah, we were able, as you have seen from our reliability, to respond, ensure that our reliability and our supply to customer remain at 99.9% in this environment.
However, I think the message that came out, that you highlighted is in relation that this type of attack on industrial facility and that type of escalation during a time where the market is very tight is a real concern, for the world, because it will have, God forbid, you know, more escalations happen over time, that it might have some impact on, supply. That was the purpose, I think, maybe my interpretation of the message. However, we remain reliable in terms of putting these facilities back on operation and that is reflected in our reliability. Second question, yes.
Martijn , thank you for your question on growth aspects. Yes, we hope that eventually they do lead to an increased capability in distributions, which is why we're actually undertaking these growth projects. Now, because our projects take multi years to come on stream, you know, I would not be able to comment about what happens, you know, after that. It depends on a lot of the opportunities that we have at that time. What I can tell you is, yes, we expect the investments that we're making to generate the free cash flows required to increase the capability of the company to distribute dividends, which is why we're talking about a sustainable progressive dividend that increases across the years, going forward.
I guess you can-
All right, thank you.
The bonus shares are a signal of our confidence in that period. You know, they're just a particular signal, you know, with that movement of the $4 billion of retained profits to share capital. Anyway, our next question is from Alastair Syme at Citigroup. Alastair, are you there, please?
Yeah, thanks, Fergus. Thanks very much for the strategic update. Can I just ask about the 4 million barrels a day of liquid to chemicals, which is a huge ambition. I mean, I think it's probably several times bigger than the current size of SABIC. Can you just remind us what the starting point here is? You know, what volumes of Aramco liquids do you think currently goes into the chemical chain? And then maybe if you just talk a little bit about the recent go-ahead in China on the greenfield development, you know, where the technology is in terms of percentage conversion from liquid into chemicals for that asset. Thank you.
Okay. Very clear, Alastair. You're right. Very ambitious goal. You know, it's a long-term goal to move towards 4 million barrels a day of liquids to chemicals. That's the question, I believe. Important question.
Yeah. Thank you, Alastair. You know, currently we have a little bit over 1 million barrels when you talk about liquids to chemicals between us and SABIC and globally. Yes, it is a big ambition to go to 4 million barrels in a short time frame. We're talking about by, hopefully by 2030, up to 4 million barrels, t hat's significant growth. Some of it will be in the kingdom and some will be out of the kingdom. Majority out of the kingdom. It will be on the east side, mainly in China and India and other countries within Asia. That is a big ambition. We currently have a good number of MOUs and a lot of discussion that is for significant plans, shifting our barrels to chemicals.
We're looking at highly integrated complexes that have more than 50% liquid to chemical. That's where we call it liquid to chemical, is how much of it will be trans-shifted to chemical. We do have our technologies, you highlighted, and how much we are looking for. We do have a catalytic cracking and thermal cracking technologies that can shift to 70% of the barrels also to chemical. But it will all depends on our partners because these are being done with other partners globally. We are progressing very well. You will hear some agreement. We already announced one in China, and we will be announcing others through the year and in the future with regard to these investments. We are confident of our ability to reach our goal of 4 million barrels of liquid to chemical.
That's it. Okay. Yeah, I think so.
Just to-
We're running, getting towards the end of the session.
Just to follow. Just to clarify, the 4 million is you think by 2030 or roughly around then?
Up to 4 million by 2030.
Brilliant. Thank you very much.
Thank you. I'll take next question from Henri Patricot at UBS. Henri, please go ahead, please.
Yes, thank you. I guess hello, and thank you for the detailed update. I have two questions, please. The first one going back to the 2022 CapEx range of $40 billion-$50 billion which is quite a wide range in absolute terms. I was wondering if you could give us, you know, some details of the moving parts here and then what factors could drive CapEx to the lower end of that range or to the upper end. And then secondly, as you start to spend more on growth CapEx, I was hoping you can share some details on your latest expectations for returns on some of these projects, gas projects, liquids to chemicals and low carbon activities. Thank you.
Thank you, Henri. What would drive, you know, ending up at the lower end of the 2022 CapEx guidance range of $40 billion? What would drive us to ending up at the higher end of the range? Question one. Question two, what sort of rates of return are we looking for the gas investments within the kingdom, liquids to chemicals, low carbon fuel, hydrogen?
Okay. Thank you for your questions, Henri. The capital spending $40 billion-$50 billion in addition to what we've traditionally mentioned as capital spending, which is what you can see in our cash flow statement, our overall investments could also include projects and joint ventures in downstream that are actually external investments. Depending on some of the projects, whether they end up as our own capital program or we you know put them in a joint venture, that's kind of the main reason why we have a wide range there. On your other question-
Rates of return and-
The rates of return for us, we're looking at you know, commercial double-digit returns. It's you know, 11%-12% return projects.
Let me just add also to this. You know, two-thirds of our project is upstream, our CapEx. Gas and oil, y ou know, oil you've seen the returns on our, if you break down our upstream and downstream, you'll see the rate of return on our upstream. The one-third, the chemical will be up to 4 million barrels of liquids to chemical. Some will be in the kingdom, which will enjoy a competitive feedstock pricing. We have the gas, we are the lowest when it comes to cost and all of that. It will be and you've seen the results from, you know, SABIC, which had one of the best years in 2021.
We do have a competitive feedstock, and it is mixed, available, and we are growing our gas for that. Globally, we are also working with a lot of good partners that, you know, the cost structure for building these facilities and the market is there. We are putting our investment in liquids to chemical in areas where it's showing really, low cost structure in terms of building these projects and also, the available market. We are confident on the profitability of these projects before we get in.
Thank you, Henri, for your questions.
Thank you.
Couple more to go now. Biraj Borkhataria from RBC. Biraj, thank you for your patience. You still there?
Hi there. Thanks for taking my questions. Two questions also. The first one's on the 2021 CapEx budget. You actually underspent relative to the budget you put out earlier in 2021 and I believe there were some constraints on executing the plan. Could you talk about those risks as it relates to 2022 and 2023? Not necessarily your ability to finance the CapEx, but actually getting the people, services, goods, and materials in country and so on. How concerned are you about supply chains as of today? And then the second question is just going back to your comments about thinking in decades.
One of the growth areas you've highlighted in terms of transition side is blue hydrogen, which is obviously a means to monetize the huge gas resources you have. I just noted that you know LNG was not part of the plan or not mentioned in your plan. I just wanted to get your kind of view on, as you're thinking in decades, can you compare and contrast the investment opportunities in both of these areas and why you're leaning towards the blue hydrogen? Thank you.
Okay, thanks, Raj. Underspend in 2021, it wasn't a budget as such but we gave guidance of around $35 billion. The actual outcome was $31.9 billion. Does that give us any concern about our ability to execute against the new guidance that we've given, the $40 billion-$50 billion for 2022 and significant growth thereafter? The second question is why focus on hydrogen for gas monetization exports? Why not go to LNG, which so many others have done?
Thank you, Raj. With regard to 2021, there was good efficiency improvements in our capital program. We were able to cut our costs, especially in drilling and in doing the unconventional gas. In gas, we were able to bring the cost down. Now we are seeing an increase in supply chain and commodity prices, so I don't know if that will continue with us going forward. You are right, supply chain is facing a lot of, you know, challenges because of what's happening. However, our local content program is really helping us. We are currently at 59% when it comes to our local content or our materials and equipment that is required in our facilities manufactured in the kingdom.
That is continuously reducing the risk and the dependency on supply chain from outside but we will continue to monitor that and we have good customer base working with our partners globally. We never failed in making sure that all our equipment's and materials to execute these projects are available on time and delivery on schedule. Let me say the 2021 is 31 is a good thing because we achieved all our goals and all our targets but with $31.9 billion. With regard to your question about blue hydrogen and LNG, this most of the gas that we produce goes to industry or utility in the kingdom, and we get a good rate of return, double digit, guaranteed, in terms of rate of return for supply of gas within the kingdom.
We decided, with the agreement of the Ministry of Energy based on the allocation that we got, to also pursue blue hydrogen, especially with the Jafurah unconventional gas coming on stream. However, we elected at this time, that we will go with blue hydrogen rather than LNG. Now, in the future, there might be something different, but for the time being, considering that the available excess gas beyond the kingdom requirement, we will avail it to hydrogen rather than LNG. We could have shifted it to LNG, but the decision based on the markets and based on the future, we wanted to go to hydrogen at this time.
Thank you, Raj. The final question, I really wanna thank Indika for our patience here, is Indika Hemantha from Alinma Investment. Indika, sorry go ahead.
Of course. Thank you for giving me opportunity and congratulations for the, beautiful results. I have a couple of questions, if you don't mind. The one, is, you mentioned this gas, 50% increase in gas and as well as the Jafurah facility coming on stream 2025. Just wanted to understand, how much, availability of, that ethane and propane or the gases, for the petrochemical industry? Do you think that, petrochemical sector should wait for such a long time, maybe two or three years to come, these additional gas allocation? That's question number one. Second question is, the income tax, the application of income tax, of course, 20% for the downstream, it is subject to, you are converting, all the downstream projects to the separate entity. How is the progress on that? Is it a kind of a difficult task for Aramco?
Third and final question is, there were like some speculation on Aramco is maybe willing to sell the crude oil at different currencies. Is there any possibilities or you are stick to the government, in terms of, you have basically depend on the government to set the prices, in terms of dollars or other currencies? Thank you so much.
Thank you. Yeah, three questions. How will the growth in gas, the 50% or more by 2030 affect availability of ethane and propane for petrochemicals industry in the kingdom? Secondly, the 20% tax rate in the downstream requires separation of entities. You know, how's that going? Are there any issues around doing that? Thirdly, would we sell oil in any currency other than U.S. dollars?
I'll take questions one a nd three. Thank you, Indika. Question two, Ziad. I will start with question number three. We don't comment on, with regard to different currencies or rumor and speculation, p ut it that way. With regard to your question number one, yes, ethane is t here will be significant growth in ethane over time. As I said, 2 billion will be coming full on the stream by 2030, b y 2024-2025, we'll have about 300 million scfd, cubic feet of gas coming on stream and then it will gradually increase. Now, that additional ethane will definitely benefit more than approximately 400 million of ethane that will be coming with the Jafurah gas. That will benefit definitely the chemical industry in the kingdom.
Allocation of that ethane is with the Ministry of Energy, by the way. That is, when we have it ready and it's available as these projects complete, the allocation will be done by the Ministry of Energy.
Indika, on your question on 20% tax rate applicable to downstream being contingent on eventually carving out the downstream operations. We have until the end of 2024 for the carve-out, w e've done the legwork. Again, we have until the end of 2024. The way we look at this at the moment is we're embarking on a very large liquids to chemicals program which is primarily really a downstream program. Until that program gets up and running, we feel it would not be very wise to do major changes, especially that we have a little bit less than three years to accomplish this. To answer your question, we've done the legwork. We would be able to do this when the time is right.
Thank you.
Excellent. Thank you so much.
I think Indika's question was the last question, so I'll now say that's the conclusion of the call. Before we end it, I'd just like to hand over to our Chief Executive for some concluding remarks.
Thank you, Fergus. In closing, let me say a few final words. We are in a time of great change, unprecedented for our industry as it faces the need to move to a lower carbon future. Also unprecedented for our company as we see an increasing need to produce more energy than ever before to meet rising demand, but with lower emissions. We are responding to this challenge by investing at a level never seen before. In doing so, we are positioning Aramco to continue to be a leading supplier of affordable, reliable, and abundant energy as the world transitions into a lower carbon future. In other words, while we cannot shape future events for Aramco, we are confident that we are shaping Aramco for future events.
Our confidence is based on many factors, including our history of overcoming challenges, as well as our company's demonstrated excellence in deploying advanced technology. The main reason for such optimism is our people. Each and every day, they continue to strive to deliver the energy the world needs now while also focusing and finding ways to supply ever cleaner energy for the future. Thank you very much, ladies and gentlemen.
This concludes today's call. You may now disconnect your lines.